“In order for Dell to go private, they’d have to issue debt and buy back stock. Leverage ratios would go through the roof,” “What always happens [in an LBO] is the stock skyrockets and the bonds plummet, and that’s exactly what’s happening today.”

The tumble in Dell bonds “highlights the importance of buying bonds with very good covenant protection,”says Scott Kimball, portfolio manager at the BMO TCH Corporate Income Fund. The Dell bonds lack any “change of control” provision whereby investors can sell the bonds back to the company at or around par in case of a buyout. Kimball says those protections are increasingly important because “the longer interest rates stay low, the more of this activity we will see.”